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Will there be a happy new year?

By William Schmick

Posted:
01/03/2013 03:17:50 PM EST

Editor's note: Even though the "fiscal cliff" impasse was resolved before the Dec. 31 deadline, this column has relevance looking forward.

Normally, it wouldn't matter when this last column of the year was written. The week between Christmas and New Year's is usually uneventful. The markets drift upward on little volume. Wall Street is mostly shuttered and all is right with the world but not this year.

Here we are at the eleventh hour once again. It's Friday, December 28th, and the Cliff is just four days away. The tension is palpable while America waits with baited breath for a 'will they or won't they' decision. Whether the politicians pull a rabbit out of the hat in the time remaining is almost immaterial at this point. The lack of action, the bickering and grandstanding in Washington are a disgrace to this country and far more serious than any particular fiscal deadline.

If I had it my way, the Academy of Motion Pictures Arts and Sciences should establish a new series of Oscars just for our nation's political parties. One award for best drama would definitely go to Speaker of the House John Boehner with Harry Reid, the Senate equivalent, as best supporting actor. President Obama would win the best comedy award while the Republican Tea Party would absolutely walk away with the best unreality show.
Sadly, it looks like 2013 will be a continuation of the last two years.

That will once again leave the Federal Reserve to run the country and its economy.

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If we do go over the Cliff it will not be the end of the world as we know it. Congress, (a word I use with disdain) could still alleviate some of the harm done by cutting taxes again quickly after they are automatically raised on January 1. Sure, that would be inefficient and borderline, stupid but consider the source. If, on the other hand, the spending cuts are not rescinded then we could see this country slide into recession in the second half of the year.

That would be a shame since only now is our economy beginning to revive. Jobless claims hit a 4 1 2 year low this week. The economy grew by over 3% in the last quarter and the Fed's stimulus policies are helping the housing market to recover. It is an outrage that our duly-elected officials are hell-bent on destroying all this progress to further their own causes and ideology.

In the meantime, have you noticed that while we fiddle away our futures, overseas investors are making consistent gains in their own stock markets? Two weeks ago I mentioned how well emerging markets, led by China and Southeast Asia, have done compared to the U.S. market. This week I will add Japan to that mix.

Japan elected Shinzo Abe as Prime Minister this week. His election reinstates the conservative Liberal Democratic Party, which has ruled Japan throughout most of the Post-War Era. Abe is the seventh prime minister in the last six years. That high turnover rate reflects the growing frustration Japanese voters have with their own politicians. Japan has suffered under decades of industrial decline and is facing the challenges of an aging population. The country has been unable to pull itself out of its economic funk over the last two decades.

Abe has promised to spend $120 billion on public works and other economic stimulus to jump-start business. At the same time, he is putting enormous pressure on Japan's central bank to help him stimulate the economy while driving the value of the yen lower. A cheaper yen would help Japan's exports, making their products more competitive. Japan's stock market has sky-rocketed on the heels of Abe's efforts.

It appears to me that 2013 may just be the year when foreign markets begin to outperform the United States.

If the world's economies continue to grow while U.S. economic policy remains hostage to dysfunctional politicians, investors may want to invest where prospects are brighter and more predictable. It may still be a Happy New Year for investors, just not in America.

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